Gas Prices Are Guessing Game, As Summer Driving Season Begins
Gas prices continue to defy logic, as the markets for crude oil and retail gasoline are off to an unpredictable start for the 2011 driving season. There’s no doubt that Memorial Day weekend drivers spent more this year than last year—about $23 per visit at the pump according to government estimates. But it could have been worse. Gasoline prices have backed off their peak of $4, down to about $3.80 as a national average.
Yet, the price of a barrel of oil continues to hover around $100—well below the annual peak of $114 per barrel in April.
Car buyers have flocked to smaller cars and more fuel-efficient technology so far this year, as gas prices climbed to high levels not seen since 2008. But it’s unclear if they will return to larger more powerful automobiles as gas prices retreat.
Some analysts explain the continuing triple-digit oil prices by pointing to the slipping value of the dollar, related to the Greek debt crisis. Others look at micro-events like last week’s small leak at a pumping station in Kansas, which caused the temporary closure of the TransCanada Corp. pipeline that transports 591,000 barrels of oil per day. Meanwhile, ongoing tensions in the Middle East continue to create jitters in the market.
The consensus seems to be that oil prices will continue to decline for the next few months, bringing much needed relief to drivers throughout the summer driving season. "It's unusual to see retail gasoline prices dropping during Memorial Day weekend," said OPIS energy analyst Tom Kloza. He expects prices to continue to fall. "Most of the $4 gas is going to disappear."
False Sense of Hope for Gas Pump Relief
The drop in pump prices is temporary, warns TheStreet.com. The website says that Goldman Sachs and Morgan Stanley, are both projecting the possibility that oil could hit somewhere between $120 and $150 as early as the end of 2011. “Compared to what's to come in the summers ahead, according to the trading experts, this summer's gas prices are going to look relatively cheap,” according to TheStreet.com. At those levels, the price at the pumps could reach a dreaded new level of $5 a gallon.
Since nobody has a clear enough crystal ball in the short-term, the best hedge against fluctuating gas prices is buying the most fuel-efficient car that meets your needs. And for the long term, especially projected out for 10 to 15 years, environmentalists and consumer groups are supporting proposals for a 60-mpg standard for cars and light trucks by 2025. Reaching that level will require widespread adoption of hybrid gas-electric vehicles. The Center for American Progress says the average American family would save $513 on summer gas expenditures with that new standard, compared to fuel efficient of today’s vehicles.